Langley & Banack Alert
March 20, 2020
Bank Regulatory Agencies Encourage Continued Lending to Households and Businesses
By: Bruce E. Toppin, III
In the wake of the extraordinary financial instability caused by the onset of the COVID-19 outbreak, federal and state bank regulatory agencies are encouraging regulated financial institutions to continue lending to households and businesses. To that end, federal regulators have announced a number of measures intended to facilitate the continued flow of credit, including:
- On March 6, the federal bank regulatory agencies issued updated interagency guidance reminding financial institutions that business continuity plans should include pandemic planning. The following is a link to the revised Interagency Statement on Pandemic Planning: https://www.occ.gov/news-issuances/bulletins/2020/bulletin-2020-13a.pdf.
- On March 9, federal and state regulators issued joint guidance encouraging financial institutions to work constructively with borrowers and other customers affected by COVID-19, and that “prudent efforts that are consistent with safe and sound lending practices should not be subject to examiner criticism.”
- On March 13, the Office of the Comptroller of the Currency issued OCC Bulletin 2020-15, offering recommendations as to how financial institutions may provide financial accommodations to customers affected by COVID-19. These include waiving fees, increasing ATM withdrawal limits, increasing lines of credit or credit card limits and allowing borrowers to defer payments to avoid delinquencies. Link to OCC Bulletin 2020-15: https://www.occ.gov/news-issuances/bulletins/2020/bulletin-2020-15.html.
- On March 15, the Federal Reserve lowered the primary credit rate by 150 basis points to 0.25% on borrowings from the Federal Reserve discount window. The Federal Reserve also encouraged financial institutions to utilize intraday credit extended by the Reserve Banks to support the continued flow of credit. Additionally, the Federal Reserve reduced the reserve requirement ratio to 0%, eliminating reserve requirements altogether, effective March 26, 2020.
- On March 17, the federal bank regulatory agencies issued interagency guidance encouraging financial institutions to utilize their capital and liquidity buffers in a safe and sound manner to continue serving the credit needs of households and businesses.
- Also, on March 17, the agencies issued an Interim Final Rule that would gradually phase in the automatic distribution restrictions applicable to banks’ capital buffers. The rule revises the definition of “eligible retained income” for all banking organizations that are subject to the agencies’ capital rules to mean the greater of (1) a banking organization’s net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income; and (2) the average of a banking organization’s net income over the preceding four quarters. This is good news for S corporation banks, as it would enable S corporation financial institutions to continue paying tax distributions to their shareholders even though the institution might otherwise be subject to restrictions on capital distributions.
Over the course of the coming days and weeks, we anticipate the agencies will continue to announce other programs and initiatives aimed at facilitating the continued flow of credit to households and businesses.
We have developed a simple two-page Loan Payment Deferral Application/Agreement that would enable borrowers to defer a specific number of principal payments, while continuing to pay accrued and unpaid interest, easing the financial burden on those affected by the COVID-19 outbreak. We are providing this form to banks free of charge. If you would like us to send you the form, please contact Bruce Toppin by e-mail at [email protected] or by telephone at (210) 253-7102.